Big Blue’s Earnings Will Show Europe’s Impact On Tech

International Business Machines (NYSE:IBM) is set to announce its Q2 earnings on July 18th. We expect the company to show solid revenue growth on y-o-y as well as q-o-q basis as the first quarter is generally the cyclical low for financial results. We expect Big Data analytics and cloud computing services will continue to drive revenue growth this quarter. IBM’s Sequoia, the world’s fastest supercomputer, is also expected to help the company sell its Big Data solutions. The expertise acquired by IBM in implementing low power data centers with high computing capabilities based on Project Blue Gene is likely to drive its cloud and analytics businesses.

IBM reported flat earnings growth for the first three months of 2012, but registered a 7% increase in net income thanks to strong profit margins in the services business. We expect revenue growth to be relatively strong in Q2 and the margins will be helped by the services business. The company earned $3.07 billion in Q1 2012, up from $2.86 billion the same period last year. Revenue was flat at $24.7 billion, and this is mainly due to a shift in focus from hardware to software and services, which has led to a decline in IBM’s hardware and financing sections. A macro factor adding to this slowdown is lower IT spending due to the Euro-zone crisis.

Focus On Cloud and Analytics To Help Margins

The company is making some big moves in cloud computing and analytics. It has set up the world’s fastest super computer Sequoia and has proved its Big Data analytics mettle with Santam, a leading insurance company in South Africa, which has saved as much as $2.4 million on fraudulent claims in the first four months of using IBM business analytics. We expect these businesses to drive growth in Q2 and have a direct impact on IBM’s Technology Services division, which constitutes ~23% of the company’s stock, by our analysis.

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